The Kenya Revenue Authority held a Stakeholder Engagement on Thursday, August 13, 2020 to create awareness of the provisions of the Finance Act 2020. The following are the highlights of the presentation:
Amendments to the Income Tax Act
From 1st January 2021, there will be an increase in the threshold of Residential Rental Income tax. The upper threshold is being increased from Kshs 10m to Kshs.15m per annum while the lower threshold increased from Kshs 144,000 to Kshs 288,000 per annum. The increase in the lower threshold is due to the minimum tax band increase as a Covid -19 measure earlier in the year.
The second significant amendment to the Income Tax Act is the introduction of minimum tax. This was introduced to ensure that all companies pay a base tax, to expand the tax base and ensure equity and fairness in the tax system. This is a base income tax payable by all companies whether or not they make a taxable profit at a rate of 1% of the gross turnover of the company. Where a corporation is not sure whether it should pay minimum tax vs instalment tax, they should pay minimum tax where it is higher than the instalment tax.
Revenue that is excluded from minimum tax include exempt income, employment income, income subject to residential rental income tax (MRI); income that is subject to Turnover Tax; income subject to Capital Gains Tax and income from the extractive sector.
The new entry is the Digital Service Tax (DST). This tax is payable by a person who derives or accrues income from services through a digital market place at the rate of 1.5% of the gross transaction value. Residents and non-residents with permanent establishments will be entitled to offset the DST paid against their final income tax liability for that year of income.
The tax commissioner may appoint an agent for the purposes of collection and remittance of DST. However, the affected companies may also appoint their own tax agent for the same purpose. The DST seeks to address the changing business models and ensure equity, fairness and neutrality in taxation between traditional methods of business and transactions carried out over digital platforms
The Kenya Revenue Authority has drafted the DST Regulations to clarify on the implementation of the tax. The proposed regulations have been published for stakeholders comments.
In the same amendment, there was a reduction of tax expenditures. The Amendments deleted the following allowable expenses:
- Any entrance fee or annual subscription paid to a trade association;
- Capital expenditures incurred for listing on securities exchange;
- Club subscriptions paid by an employer on behalf of an employee;
- Provisions on Home Ownership Savings Plan (HOSP); and
- The exemption of the income of a registered HOSP.
On the latter, it was replaced by the tax incentive introduced to Kenyans who want to save for the Affordable Housing Programme.
The deletion of exemption on income from employment paid in the form of bonuses and to employees – low income earners was necessitated by adjustment of the minimum tax band.
Amendments to the Value Added Tax Act
In the Finance Act 2020, the Value Added Tax Act is amended to include claim of input tax. Input tax is only be claimable by a person, if the registered supplier has made a corresponding declaration of the output tax in their return.
On VAT exemptions, maize seeds and ambulance services were exempted from VAT. The zero rating of maize, wheat flour exemption was suspended for a period of 6 months. LPG gas deletion from the zero – rating schedule was suspended until 1st July 2021. Other things that were removed from the schedule were inputs on raw materials for electric accumulators and separators including lead battery separator rolls.
Amendments to the Excise Duty Act
In the Excise Duty Act, the definition of “license” was enhanced to cover a license issued for any activity in Kenya for which the Commissioner may impose a requirement for a license. The Act was also amended to empower the Commissioner General to seek an approval from the Cabinet Secretary Treasury in order to adjust the specific rate of excise duty.
On rates of Excise Duty, there was a change of alcoholic strength of spirituous beverage from 10% to 6% 30th June, 2020. The Act also removed excise duty on betting.
Amendments to the Tax Procedures Act
The Act was amended to introduce a Voluntary Disclosure Programme (VDP). This is where a tax payer discloses tax liabilities that were previously undisclosed to the Commissioner for the purpose of being granted relief of penalties and interest. This programme shall be open for a period of 3 years effective 1st January 2021. The disclosures eligible under the program will be for tax periods of up to 5 years prior to1st July 2020.
Where the application is accepted, the applicant shall be granted are mission of the interest and penalty due on the tax liability as follows –
(i)100% remission for applications / disclosures made in 2021;
(ii) 50% remission for applications / disclosures made in 2022; and
(iii) 25% remission for applications / disclosures made in 2023.
Taxpayers under audit, investigation or with ongoing litigation in respect of the tax liability, taxpayers who have been notified of a pending audit or investigation by the Commissioner are ineligible for VDP.
The Import Declaration Fee rate for goods under the EAC Duty Remission Scheme (DRS) from a specific rate of Kshs. 10,000 to an ad-valorem rate of 1.5% of the Customs value. The Act introduced an additional duty of 2.5% on goods entered for home use from an Export Processing Zone enterprise.
The amendment allows IDF/RDL exemptions for equipment, machinery and motor vehicles for the official use by the Kenya Defence Forces and National Police from payment of IDF at importation. There is now a RDL exemption for currency notes and coins imported by the Central Bank of Kenya.
The Amendment deletes IDF exemptions on the following:
- Small aircrafts & Helicopters
- Goods imported for implementation of projects under SOFA
- Goods the CS may determine are in public interest, or to promote investments with a value of more than Kshs. 200 Million
Amendments to the KRA Act & TAT Act
The Kenya Revenue Authority Act has been amended to add training and capacity building as a function of KRA. This is to empower KRA to run KESSRA effectively.
On suits against KRA, the law has been amended to provide for limitation of the period within which suits can be commenced against the Authority to facilitate effective handling of disputes.
The Tax Appeals Tribunal Act has been amended to restrict documents presented by an appellant to the Tax Appeals Tribunal to those which had been provided to the Commissioner during the objection process. This is to ensure objectors file all necessary document at first instance and not later during the appeal.
The Kenya Revenue Authority will organize more stakeholder engagement forum in its quest to make more people understand Kenya’s tax regime.